Is Loyalty Service Like 'Amazon Prime' A Game Changer For Indian E-Commerce?

Indian e-commerce sales haven't been growing as fast as expected

Retail giant Amazon's plans to launch its subscription service 'Amazon Prime' across 100 Indian cities, has put its head-to-head with Flipkart's 'Flipkart First', which also offers a similar service.

For an introductory annual subscription fee of Rs 499, Amazon Prime will allow members same-day, morning or scheduled delivery on over 10,000 products, in addition to providing access to Amazon Video when that launches. Flipkart First, also offers a similar subscription-based service for Rs 500 annually.

India's online marketplace has been a battleground among major rivals such as Amazon and private equity-backed Flipkart and Snapdeal. However, despite the rapid growth in Internet use and a huge potential for further growth, many e-commerce companies in India are struggling to raise fresh capital from investors, who are demanding more focus on growing sales and profitability. According to a Mint report, for the first time in years, online retail sales in April were lower than sales in December.

Given that, can subscription services like Amazon Prime and Flipkart First, which are primarily aimed at winning customer loyalty, resuscitate the e-commerce space?

Industry observers think that may happen but only to a limited extent. While these services do bring about "customer stickiness" -- which has been particularly problematic in India, where customers often switch for bargains and discounts to other rivals, their reach will be fairly limited.

While the Indian e-commerce space has matured in the past year, the adoption of such as service is likely to be slow and unlikely to change the fortunes of the Indian e-commerce industry in the short-term, according to Mrigank Gutgutia, an engagement manager RedSeer Consulting, an internet consulting firm.

"The challenge in the Indian e-commerce ecosystem is that consumers aren't loyal – they come for discounts," said Gutgutia. "Flipkart First, when it was launched, didn't work for various reasons including that the consumers weren't ready for a loyalty-shaped initiative."

The challenge in the Indian e-commerce ecosystem is that consumers aren't loyal – they come for discounts"

However, Amazon may see success in the long-term as its subscription service is available across a broader product range because of its much larger inventory.

In addition, both services target the "high-income" customer base, which is fairly small, making up less than one per cent of the broader 40 million Indian e-commerce universe in India, noted Anil Kumar, founder and CEO of RedSeer. That number isn't large enough to substantially shape the e-commerce trends currently.

To be sure, Amazon is armed with a war chest of nearly $5 billion for India alone, with its CEO Jeff Bezos announcing a commitment of $3 billion into India earlier this year. On Friday, Amazon Chief Financial Officer Brian T Olsavsky, said that Amazon Prime could open a "new chapter" for India.

In the coming months, Kumar said, India's e-commerce space will be driven by trends such as a refocus on "gross merchandize value" or GMV from the recent push on just increasing sales and profits. GMV represents the total value of merchandise sold through a marketplace.

"There has been zero focus on GMV, but I do see that in next six months that strategy will change as we approach the festive seasons," said Kumar. "We will see more discounts – that have completely gone off the shelf," said Kumar.